November 24, 2009
Payment bonds may be a subcontractor or supplier's most valuable resource when taking part in a public construction project. As outlined by Jim Fullerton, Esq., principal, Fullerton & Knowles, PC, during his recent NACM-sponsored teleconference, payment bonds can offer an invaluable level of security for construction-based creditors.
Fullerton began his discussion by clarifying that payment bonds neither are promissory notes nor deeds of trust or mortgages. Rather, as Fullerton explained, payment bonds provide security to third-party beneficiaries by establishing a "promise to pay." Payment bonds are often held by sureties (usually insurance companies) that guarantee remuneration. Fullerton cautioned that sureties, like other guarantors, can face financial difficulties and even outright insolvency.
Thus, it is extremely beneficial for subcontractors and suppliers to learn as much about a project's payment bond. Fullerton encouraged participants to obtain a copy of the payment bond as soon as possible—ideally during the bidding process. He noted, however, general contractors do not always wish to share this information, and it may take some keen negotiating to gather payment bond details. "Be proactive and persuasive," Fullerton urged. "For instance, use better pricing as a possible negotiating tool in order to get your hands on that information."
Because of their similar roles in the construction credit process, payment bonds may be confused with mechanic's liens. Payment bonds, however, are limited to public construction projects–those built by federal and state government entities. Subs and suppliers cannot file mechanic's liens on public projects due to sovereign immunity. Instead, security and recourse may be found in payment bonds, which are structured to protect third-party interests. The federally-based Miller Act establishes the parameters for payment bonds on federal government projects. Alternately, each state has its own version of the Miller Act, generically known as a Little Miller Act, that defines payment bonds for state government projects. The coverage provided by Little Miller Acts varies widely, so it's essential that subcontractors and suppliers are aware of their rights when bidding on a project.
For example, in most states third-tier subcontractors are not protected by Little Miller Acts; however, in Maryland such subs would be among the parties covered by a payment bond. Consequently, having this added layer of protection could help a subcontractor bid more competitively on a project overseen by the state of Maryland.
Fullerton also discussed the role of "bond claim notices." First-tier subcontractors usually must file suit on a bond within one year of last work. For subcontractors located further down the line, notice requirements are more stringent. According to Fullerton, a second-tier claimant must provide written notice to the prime contractor within 90 days from the date on which the claimant supplied its last labor or material for which the claim is made. Fullerton added, "A claimant can't send too many notices in too many different formats to too many recipients." Delivery methods should include certified mail, fax, email and a FedEx-like shipment option in order to cover as much ground as possible.
Additional information about construction-related credit issues, including UCC security agreements, trust fund law and mechanic's liens, can be found on the Fullerton & Knowles website (www.FullertonLaw.com). Likewise, NACM members who missed Fullerton's presentation may contact Tracey Flaesch 410-740-5560 and firstname.lastname@example.org) in order to hear a replay of the payment bonds teleconference.
Future teleconferences will cover a diverse lineup of topics including managing conflict, dealing with delinquent accounts and seeking protection from customer bankruptcy risk. Learn more today by visiting NACM's website.
Laura Redcay, NACM staff writer
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C4F: Employment Connections for the Business Credit Community
President Barack Obama recently announced that the U.S. would actively participate in trade negotiations to enact the Trans-Pacific Strategic Economic Partnership (TPP). The U.S originally joined the TPP discussion in 2008, but has only recently pledged its commitment to re-engage the plan's already diverse membership.
Passage of a TPP could potentially create a large free-trade zone in emerging Asia-Pacific markets and be a boon to many businesses in the U.S. Membership in the agreement currently includes Singapore, Australia, Peru, Chile, New Zealand, and Brunei with Vietnam as an observer.
Obama's announcement drew cheers from both sides of the political aisle. "President Obama's decision to participate in the TPP negotiations is right for American jobs, right for American exporters and right for the American economy," said Senate Finance Committee Chairman Max Baucus (D-MT), whose committee counts international trade as part of its jurisdiction. "The Asia‐Pacific region will continue to grow and economically integrate in the coming years. By opening these key markets for American exporters, the United States shows it has a new blueprint on trade focusing first and foremost on the needs of America's businesses and America's workers."
"The TPP offers both opportunities and challenges," said Rep. Charles Rangel (D-NY), chairman of the House Ways and Means Committee. "Done effectively, it can be of mutual economic benefit, including by breaking down barriers and gaining real access for U.S. farmers, workers and businesses, and incorporating international labor and environmental standards."
Others noted that while the TPP negotiations are a step in the right direction, the Obama administration still can do more to promote exports as a means to job creation. Senate Finance Committee Ranking Member Chuck Grassley (R-IA) noted that, in addition to the TPP, other free trade agreements exist that could greatly benefit the U.S. and its struggling employment numbers. "I support the Administration's action and also know that we need to do more," said Grassley. "The President wants to focus on job creation here in the United States. One way to do that is to open up new market opportunities for exporters."
Trade agreements are currently pending with Colombia, Panama and South Korea.
Jacob Barron, NACM staff writer
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• 30 chapters operating throughout the United States
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• Membership available to all credit professionals who are members of NACM or CRF; direct membership available in areas with no CFDD chapter
Conducting business with an entity as large and unique as the U.S. government can seem daunting at the onset. If a creditor knows how to collect, however, it makes the entire process much easier and the risk more palatable considering the great potential for profit offered by federal business.
Contractors, subcontractors and suppliers looking for a rundown of just what the government expects of its creditors received a thorough explanation of how to collect on contracts from William Blumberg, a former official for the Defense Finance and Accounting Service (DFAS), in his GBG-sponsored teleconference, "Getting Paid on Government Contracts."
Blumberg started with some immutable truths that he had come to discover in his lengthy experience working with the government and its many business creditors. "All problems show up as financial issues, many of which are accounts receivable," he said. "However, all problems have sources."
While the entire process may seem immeasurable, Blumberg noted that all problems have solutions and can be avoided by a careful, considered and often common-sense approach. "A lot of people have never read their contracts," he said, noting that this is vital to preventing future payment problems. "You also have to be aware of the government's fiscal year," he added.
Many businesses run into problems by taking a somewhat overeager attitude toward performing work and expecting payment. When it comes to working with the government, it's important to know when there's a definitive agreement and that no work or business should be done without one. "Do not do the work without a signed contract or a signed modification," said Blumberg. "Only a signed contract or a signed modification means the work is paid for."
Blumberg also discussed the Prompt Payment Act, including what it covers and what it doesn't, as well as how to file claims for unpaid interest on government contracts. To learn more about how to do better business with the government, check out NACM's Government Business Group (GBG) by clicking here.
Jacob Barron, NACM staff writer
How to Manage Conflict...And Survive It!
Conflicts in today's business environment can often crop up quickly, and many people tend to react to them with their initial gut response. While an emotional reaction may seem natural at the time, it can often have negative ramifications for everyone involved and wind up turning a small disagreement into a major hassle. Join host Toni Drake, CCE of TRM Financial Services, Inc. on December 2nd for the NACM added-advantage teleconference, "How to Manage Conflict...And Survive it!" Learn why effective conflict resolution takes precise, considered communication, as well as constructive management. This teleconference will give attendees the tools they need to more carefully handle a precarious situation by identifying the various stages of conflict.
To register, click here.
Most governments borrow heavily to fund wars. In 1914, Germany was no different. And like any other country, the German government didn't think it would lose, so the prospect of being able to pay off the loans wasn't in question. But the massive war debt combined with the tremendous burden of reparation payments Germany was left with after it's defeat in World War I kicked off one of the most rampant inflationary periods in history. Unfortunately, the wounds were all self-inflicted.
"They had a great idea: print money," said Dan North, vice president of risk, Euler Hermes ACI. "They figured that was a good way to pay the debt back. As a result, the inflation rate started to rise fairly rapidly." By 1923, the cost of a loaf of bread in Germany soared to 200 million marks. France and Belgium, claiming treaty violations and fearing they would never get paid what they were owed, sent troops to occupy prime industrial areas. The wholesale price index rose to 726 billion. The German mark devalued so quickly that there weren't enough printing presses in the country to keep up a steady supply of paper notes so that citizens could purchase even the most basic of necessities. In 1923, according to The Nightmare German Inflation, a report published in 1970 by Scientific Market Analysis, there were 300 paper mills working full speed and 150 printing companies with 2,000 printing presses running 24 hours a day trying to keep up with the need for German marks.
"At this point, people are literally walking around with wheelbarrows full of cash," North said. "They burned the money because it was cheaper than buying fuel. Workers got paid not every week or every day, but twice a day. They got paid at lunchtime, took it all to the gates and gave it to their wives and said, 'Spend it all now.'" Prices for goods rose rapidly in just a matter of hours each day as inflation bounded out of control.
Even though that period of hyperinflation was mind-boggling, it was brought under control, practically overnight. And though it's a terrifying era in economic history, it still fails to compare to what is transpiring in Zimbabwe today. The Zimbabwean government has transformed every one of its citizens into billionaires, printing currency in ludicrous denominations such as $250 billion bills as the Zimbabwean dollar has plummeted in value. "I've tried to think of a way to explain how worthless it is," said North. "And the best I can come up with is that it's worth less than the air it occupies." Currently, the inflation rate in Zimbabwe is a number with more than 10,000 zeroes behind it.
Though North's discussion at the FCIB's 20th Annual Global Conference was eye-popping, and even humorous in considering how worthless these currencies became under the burden of hyperinflation, it was nonetheless poignant as the United States and Europe emerge from the shroud of recession. The whispers of inflationary concerns have begun to hit ears in the U.S., but the Federal Reserve Board continues to allay fears that it sees no signs of impending inflation yet.
As one of the country's most prominent economists with a proven track record of anticipating economic trends, North admitted that the latest recession was really not that surprising. The current financial sag has weighed down the U.S. economy twice as long as the average 10 months of a normal recession, but the typical predicators for a recession were clearly apparent in the months leading up to the collapse at the end of 2007. Throughout history, every time there has been a sharp spike in oil prices, it has been followed by a recession.
North was just one of many speakers that enlightened and educated attendees at this year's FCIB Global Conference, held once again in the beautiful Ritz-Carlton in Manalapan, Florida. The warm Florida weather provided most international credit practitioners a much-needed break from the early winter chill, while inside conference-goers enjoyed an array of networking events and premier educational opportunities including developing homegrown credit scoring models, global trade risks, establishing credit policies and discussing the outlook for the global marketplace.
For more on FCIB's upcoming events, visit www.fcibglobal.com.
Matthew Carr, NACM staff writer
One of the easiest mistakes for U.S. companies working in Canada can make is to forget the very real lines that delineate one country from the other. Its proximity and relative friendliness in terms of language and culture can easily mislead new sellers into thinking that Canada is just an extension of the U.S., which is where many companies can run into problems, especially in collections.
Find out more about Canadian collection laws, province-to-province differences and more in the November/December Business Credit article, "Same Differences: What the Best Collectors Know, and Do, in Canada."
Subscribe to Business Credit here.
The process of creating a company's credit application is one fraught with pitfalls, where each minor inclusion or exclusion can wind up having chaotic effects if the relationship goes bad. "This is not just the beginning of your relationship," cautioned Wanda Borges, Esq. "This is going to pull you through your relationship as you continue to do business with that customer and if and when you end up in litigation with that customer."
In her recent NACM-sponsored teleconference on the subject, Borges noted that the credit application is the beginning, middle and end of a business relationship, and the way it's constructed can be the difference between payment and loss.
"My absolute first and cardinal rule of credit is to know your customer," said Borges. "As I said, your credit application is not merely the beginning, but it will hold you in. When you come to litigation, if you don't have the correct legal makeup of your customer, your entire legal atmosphere becomes tainted." A customer's legal identity, whether it's a corporation, a limited liability company, or otherwise, determines who can be sought out to pay what. Knowing the differences between these and how they play in court can have a huge effect on the proceedings and, therefore, on how the credit application should be structured.
Business establishment details also become a necessary part of knowing your customer and should be included on any application for credit. "When you are looking for business establishment details you want when were they created and when did they start doing business, which may differ from the date of corporation," Borges noted. "It may be a month or two or six before they actually open their doors and that's very important to know." If a company was started in 2006, a potential trade creditor could think that the business has been going for three whole years, but, in reality, the owners may have founded the company in 2006 but never really opened until 2008. This has a huge effect on how resilient the customer appears and these details should be included on a credit application.
"You also want to know where they are incorporated or registered," she added. "This becomes important if and when you sue them and if and when you want a security interest." Filing a security interest according to the Uniform Commercial Code (UCC) requires additional information as well. "You want their federal tax ID number and a state ID number," Borges noted.
Borges also discussed other types of information that should be part of an effective credit application and how best to impose a creditor's own terms and conditions on the same document.
Jacob Barron, NACM staff writer
Industry Credit Groups
Credit groups are an effective management tool. They permit credit professionals of different companies servicing the same customer, regardless of industry or trade, to compare information on collection history and provide a forum for the exchange of data as to the most recent payment practices. The purpose of exchanging information is to help group members segregate fiction from fact, so competent and realistic credit decisions about a customer can be made.
Managed and operated by NACM Affiliates nationwide, NACM-Canada and FCIB internationally, credit groups:
- Provide unparalleled networking opportunities
- Assist in the exchange of credit information on common customers
- Facilitate the receipt and analysis of information to make unilateral credit decisions
- Provide a forum to discuss the latest developments on credit department procedures,
equipment and other credit management functions
- Support the discussion of account information and delinquent account reports
- Adhere to federal antitrust guidelines
Click here to learn more about NACM credit groups and find the group for your industry.
The gap in structural costs between United States and offshore manufacturing has closed by almost half in the past three years. Some industry analysts say this trend creates new strategic options for facility and supply chain planning. Others argue that two of the structural drivers, energy costs and taxes, will make it impossible for U.S. manufacturing to regain a competitive advantage. So does this signal that it's time to start bringing manufacturing jobs back to the U.S.?
"The fact that the gap closed in just two years is meaningful change, and some companies are looking hard at jumping on the repatriation bandwagon," said Dimitri Shiry, partner, Deloite LLP. "This is especially true for those where the intellectual property and quality risks of offshore operations offset the benefits of lower manufacturing costs. If the U.S. is going to reestablish manufacturing as a catalyst for growth during the next cycle of economic recovery, that trend will need to continue and expand."
Shiry noted that one reason for the improvement is that other countries are experiencing increases in non-wage costs. Canada and the United Kingdom are seeing health-care benefits go up as supplemental private insurance becomes more popular. Increasing tort claims are impacting other European countries, and China is being affected by rising pollution control requirements.
"Another factor is that some costs in the U.S. are easing," Shiry added. "Domestic manufacturers have managed benefit expenses by moving toward less expensive defined contribution plans. For some manufacturers, though, the double hit of high energy costs and taxes can trump all other considerations. And, unless policy-makers align incentives to encourage the repatriation of jobs, today's positive trends could be short-lived."
Tom Morrison, principal, Deloitte Consulting LLP and Todd Izzo, partner, Deloite Tax LLP fuel the debate with perspectives regarding talent and tax, respectively:
- Talent. Manufacturers are facing a global talent crisis. The crisis is not about the availability of workers for jobs that require technical skills. It is about a mismatch of the availability of these skills where manufacturers want them most. Companies and communities with plans and a commitment to skills development and retention will likely have a leg up.
- Tax. Taxes can play an important role in encouraging companies to expand in the U.S. If the U.S. were to adopt tax policies that encouraged domestic investment in capital and labor, such actions could further reduce the structure gap in costs between U.S. firms and their foreign competitors. Congress has an opportunity in the next few years to strengthen U.S. manufacturing by shifting the conversation about raising business taxes into a serious conversation about fundamentally reforming business tax rules to encourage investment in labor and capital.
To view Deloitte's points and counterpoints regarding manufacturing jobs and related issues, please go to http://www.deloitte.com/us/debates/bringjobshome.
This topic is one in a series of Deloitte Debates that examine today's pressing business issues from multiple perspectives. New debate topics are added weekly. For a full library of Debates, please visit www.deloitte.com/debates.
Source: Deloitte LLP
The road to a successful career is frequently paved with disappointments, delays and detours. Whether it's a job loss, a missed promotion or a poor performance review, everyone faces setbacks during the course of his or her professional life. And while you can't necessarily prevent running into job-related hurdles, you can work on developing coping skills that enable you to quickly bounce back. Following are tips on becoming more resilient and turning adversity into opportunity:
Take time to collect your thoughts. Anger, shock, frustration and resentment are common emotions following a setback. It's critical to regain your composure before making any decisions about next steps. Give yourself a cooling-off period to regroup so you can objectively analyze your situation.
Avoid playing the blame game. Rather than blaming other people, focus on the sequence of events that led to the setback. Try to identify what you could have done differently to generate a more positive outcome. Ask yourself tough questions. Were there issues you failed to address? At what point did things take a turn for the worse? Look back and learn before looking forward.
Empower yourself. Instead of succumbing to self-pity, recognize that you can take a proactive approach to your dilemma. Although you may not have been able to control what happened, you are in the driver's seat as to what comes next.
Set specific goals. Turn your attention to what you need to do to successfully move forward. For example, if you missed a promotion, perhaps you didn't have all of the required skills or qualifications. What can you do to land the job next time? Develop a list of action items, such as pursuing continuing education courses, working with a mentor, or seeking the certified public accountant (CPA) designation.
For more advice on management and career issues, listen to The Management Minute, Robert Half's podcast series http://www.rhi.com/podcast.
Source: Robert Half International
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